Govt may find it tough to apply Singh panel’s recommendations
NEW DELHI: The government’ s decision to re capital i se public sector banks through issue of bonds worth ₹1.35 lakh crore over two years could increase India’ s debtto-GDP ratio, making it difficult for the government to implement the NK Singh fiscal discipline review committee’s report.
Finance minister Arun Jaitley on Tuesday announced a ₹2.11 lakh crore bank recapitalisation plan for state-owned lenders weighed down by bad loans, seeking to stimulate the flow of credit to spur private investment and economic growth that slowed down to a three-year low of 5.7% in the June quarter of 2017-18.
Over and above the bond issue, banks will raise funds from the market while diluting government equity. The Centre has not yet revealed the nature of the bonds and the issuing authority though it has said most of it will be front-loaded with maximum allocation in the current fiscal itself.
The N K Singh committee that submitted its report in April this year recommended anchoring India’ s fiscal discipline by focusing on bringing down the debt-to-GDP ratio of the centre steeply to 38.7% by 2022-23 from 49.4% in 2016-17. The Centre is yet to take a final view on implementing the recommendations of the panel.
U BS Bank in a report released on Wednesday said while recapitalisation bonds may not be counted as part of the fiscal deficit and are likely to be liquidity neutral, yet debt-to-GDP could increase by around 120 basis points if the government goes ahead with the issuance.
Brokerage and investment firm CLSA in a note said the downside is that bank recapitali- sation will increase the central government’s debt-to-GDP ratio by one percentage point to 48% and will lower the chances of a sovereign credit rating upgrade.
The finance ministry in a statement on Tuesday said from the angle of internal and external public debt stock, India does not face serious fiscal solvency-related issues. “Government of India’s total outstanding liabilities-to-GDP ratio is budgeted to decline from 46.7% by year-end 2016-17(RE) to 44.7% by year-end 2017-18,” it added.